Early Banking

Background

Early Banks were not effective at mobilising capital.  They largely facilitated the transfer of funds. Anti-usury legislation fixed interest rates at a maximum of 7 percent in 1721.

Monies were most commonly transferred by bills of exchange written between merchant houses.  Bills of exchange facilitated international and domestic trade.  Government bills drawn on the treasury had a greater security and less risk of default.  They were more marketable.

Bills were bought and sold generally at a discount, representing an implicit interest rate and risk premium.  Bills drawn on reliable houses and merchants were more valuable.

18th Century Merchant Banks

By the middle of the 18th century there were a number of merchant houses of London/Irish origin which facilitated Irish trade.  London was a centre of international commerce with connections to North America, the Indies, Caribbean etc. Merchants required reliable correspondents in foreign ports and places to reliably undertake business.

The most famous Irish bank in the 18th century was the La Touche Bank.  It developed from business established by Huguenot refugees in 1710 and was a family business.  The bank were bankers to many of the landed gentry. The bank had correspondents in many English and European cities.

A statute was passed in the middle of the 18th century following a collapse of a bank prohibiting merchants also trading as bankers. The legislation was circumvented in practice.

Bank of Ireland

In 1696, the Bank of England had been formed providing services for the British government.  In 1782, governmental and financial interests pressed for the establishment of a national bank leading to establishment of Bank of Ireland.  It was established with an authorized capital of £600,000 subscribed by directors.

The Bank was incorporated and remains to this day incorporated as the Governor and Company of the Bank of Ireland.  Provision in 1756 legislation restricted the banks to six partners was varied for the bank.

The Bank commenced with a initial £600,000 with power to borrow another £600,000 serviced and secured against a government loan.  The board of directors of the bank were subject to the oaths of allegiance and supremacy.

From 1797 the bank managed the national debt and by the end of the 18th century it had matched in size all of the private banks in Dublin.

Bank Collapses

Most banks in Ireland in the 18th century were relatively local, small-scale and were almost always partnerships.  Banking was very unstable in the 18th century.  There were frequent bank runs and bank partnerships commonly went bankrupt.

A bank run could be engendered by rumour.  There were a number of periods of severe financial instability in the middle of the 18th century.

A number of banks collapsed in the middle of the 18th century due to economic circumstances and strained liquidity arising from bad debt experience. Hints or rumours of financial crisis could engender a lack of confidence.  Famines,  rebellions and international wars were common in the 18th century caused bank runs as persons tried to convert banknotes into gold or other valuables.

Legislation in 1756 precluded merchants involved in foreign trade from engaging in banking.  Banking and commerce were insulated. Private banking in the latter part of the 18th century did not display the same innovative character as earlier in the century.

Failed Banks

• 1731– The banking firm of Mead & Curtis (established 1710) in Dublin failed with debts of £10,500 and a relief Act was passed
• 1733– Burton’s Bank crashed leaving debts of 79,128 pounds, 5 shillings and 4 pence
• 1754-55– There was a major banking crisis when 3 banks failed due to frauds
  • Dillon & Farrell Bank
  • Willcox & Dawson Bank
  • Lennox & French Bank
• 1758– Clements, Malone & Gore Bank failed
• 1759– R. & T. Dawson Bank and Mitchell & Macarill Bank suspended payments which  led to widespread panic and the remaining banks were government guaranteed
• 1779– there was a further crisis, leading to failures of 2 banks
  • Mitchell Bank
  • Underwood Bank

Monetary Conditions

There was no Irish mint.  A range of coins circulated with value pegged to their metallic value.  Traders minted coinage in terms of metallic value and weight.

In the wake of international financial crisis arising from the French wars the Irish rebellion and other international factors, the British government went off the gold standard for most purposes.

The lack of confidence made other investments unattractive and appears to have increased interest in government stock.  Legislation of the Irish Parliament in 1799 regulated the past legislation, regulating an Irish Stock exchange for the purpose of sale and purchase of government securities.

Insurance

The first insurance businesses were formed in the mid-18th century in Dublin.  Numbers of merchants associated themselves for the purpose of insuring lives, merchandise.

Marine insurance was available in Dublin and Cork in the middle of the 18th century.  Life, fire and marine business were the most commonly transacted.